SG Commodities Review: European Gas and LNG

SG Commodities Review: European Gas and LNG

Thierry Bros
2013.03.20

■ Norway exported a record 107.6 bcm of pipe gas in 2012, according to the gas system operator Gassco.

■ At its 2013 Investor Day, Gazprom released its 2012 export volumes to Europe (incl Turkey) at 138.8 bcm vs 154 bcm expected in early 2012, a reduction of 9%.

■ Statoil mentioned at its FY results presentation that 55% of its gas was sold under spot (vs 25% three to four years ago) while Gazprom reiterated that only 7% of its gas is sold under spot.

■ In 2012, European gas consumption was down 3.7%, falling to its lowest level since 1999. Not only has this erased 13 years of growth, but there is no chance of the 500 bcm level being attained this side of 2020e. We are forecasting no growth for 2013e, given one fewer winter day (2012 being a leap year), global warming, more renewable energy, and coal still much cheaper than gas.

■ In our European gas model, we concentrate on Europe OECD excluding Turkey. With increased Norwegian production and declining Russian imports, we end up with 2012 being the first year when Norway was the leading supplier to Europe. Russia, which used to hold the leading position, has now been relegated to second place due to its inflexibility on pricing.

■ According to our estimates, Russian prepaid volumes by European companies amounted to 3 bcm in 2009, 6 bcm in 2010, 1 bcm in 2011 and 2 bcm in 2012. And, those pre-paid volumes (a total of 12 bcm) are still waiting in Russia to be called by European companies…

■ GDF Suez has renegotiated its long-term procurement contracts, reducing the weighting to oil indexed to 64% from January 2013, vs 74% in 2012.

■ RWE has taken Gazprom to arbitration in an attempt to fully index contracted volumes to spot prices. One possibility is that the arbitrators may decide (in H1 2013e) that this long-term contract which was oil-indexed –the only price mechanism available at the time – should now be spot-based, since this is the way the majority of gas is expected to be sold in Europe. Such a decision could reduce oil indexation to just 50% of the total. We believe this could be a tipping point.

■ In January, in Algeria, the gas plant In Amenas was attacked by terrorists. Then, from 3 to 8 March, Libyan exports to Italy were halted due to domestic turmoil. But, any issue in pipe gas from Libya and or Algeria should be easily mitigated by Russian gas.